Blame Your Puny Paycheck

Posted on Feb 16, 2009

The hyperbolic sales pitch about the big stimulus bill comes to a close with the president’s signature on the landmark legislation. Time now for the more extravagant political marketing job needed for the enormous bailout of the financial industry that is still to come and, in all likelihood, the failure (though we won’t necessarily call it that) of some very large banks.

The pause between promotional efforts allows for reflection on what the stimulus measure—or, for that matter, the herculean effort to get the banks in better shape—will and will not do. If we are lucky, both will slow the bleeding that is sapping the economy in ways that only those who lived through the Great Depression can readily imagine. Stabilizing the patient is about all we can hope for.

The rock-bottom line of the economic crisis isn’t that people took out mortgages they couldn’t pay while shady brokers and rapacious financiers were all too happy to give them out, then buy them up and resell them to some unwitting investor. These are all symptoms of a disease that took hold deeper in the economy.

For too many years, too many people—the majority of Americans, in fact—just didn’t make enough money to maintain a middle-class living. Though some liberal economists complained about this, few listened. Conservatives, meanwhile, promoted an alternate focus on the big homes, big cars, big TVs and other accouterments of ‘‘living large” that were supposed to demonstrate an ever-rising standard of living. All this bigness was bought with big credit card balances and even bigger scams involving mortgages that were so appallingly flimsy in their requirements that Bernie Madoff could have dreamed them up.

Who to believe? How about the Federal Reserve.

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Its latest survey of family finances was released last week. It covers the period between 2004 and 2007—before the cascade of economic misfortune rained down hard in 2008. The Fed lays it all out: “Median incomes declined over the 2004-07 period for all groups except childless, single families. ... The largest decline (4.5 percent) was for couples ... with children.”

Yup, those very hard-working American families so venerated in political speeches and campaign commercials. The same politicians who use these families as props were willfully blind to the downward trajectory of their lives. Many of them promoted policies that sped this spiral while they lifted up the fortunes of their most fortunate political backers.

Three years does not make an economic lifetime. So what was going on before that? “Median income measured in the survey had been relatively flat for all income groups since 2001 after an earlier period of growth before 1998,” the Fed says.

So incomes flat-lined for most of the decade, then began to sink. Americans made up for the gap between income and expenses with deficit spending. The Fed report says nearly half of families carried a credit card balance in 2007. The median balance rose by 25 percent during the three years of the survey and stood at about $3,000.

This is what the ledger looked like before the millions of layoffs, pay cuts and freezes and all-around misery now forced upon us. This didn’t start with the mortgage and credit crisis. It all began with the wage crisis.

Back in the 1980s, it was fashionable for Democrats to campaign through the bleak landscape of what was becoming the Rust Belt and pledge that we would not—could not—become “a nation of hamburger-flippers.” Well, we didn’t. In the 1990s, at least some of us became tech wizards, while others became what we believed to be financial geniuses, exporting American ingenuity in the form of incomprehensible investment instruments.

And through it all, those who complained that globalization was depressing the wages of Americans who simply couldn’t—and shouldn’t—have to compete with cut-rate workers who toil under inhumane conditions were shunned as hopelessly retro. Those who argued that American businesses shouldn’t be forced to choose between providing health insurance for workers or shipping the jobs overseas, where governments finance the health care burden, were dismissed as promoters of “socialized medicine.”

So here we are, hoping that a stimulus package that is bigger than anything since the New Deal will bring new prosperity. In the short term, that is possible. In the long term, it’s not likely. Nothing will do the job until we return to the bedrock principle that good paydays make for a good economy.

Yeah, all accurate enough, though ongoing since 1970s, and not purely matter of conservatives’ extolling. They weren’t alone in promoting the “good life.” I doubt even Reagan promoted so much as did Clinton.

For all practical purposes (barring measly increases here and there) wages haven’t increased since the 70s. Salaries maybe a little more so, though not much more so.

Easy credit is what became more plentiful. Encouraged and indulged in by persons of all political persuasions.

Harry Reid and Nancy Pelosi weren’t (and still aren’t) equally blind? They never went on and on and on about just how good it all was and would continue to be?

Then yesterday or day before, Clinton talked of how he played no role in our current economic demise. Not the first time Clinton’s denied his own doing.

CELIA::: We have had very very similiar experiences, reading your post was like reading my own life. I went to school during the 80s and temped during the late 80s: very little experience and mostly part time: and made between 8 and 10 dollars an hour. This, when I paid 300 a month for a one bedroom apertment, $90 a month for car insurance and had a $15 a month phone bill. Fast forward to today and I found myself again making 8 dollars an hour: after getting cut from a better job. Along with all my coworkers who all have degrees and experience like me and all trying to get by with 8 to 10 dollars an hour twenty years later. Only now I pay 500 a month for an apartment and have seen most everything else going up.

i agree with the conclusion “Nothing will do the job until we return to the bedrock principle that good paydays make for a good economy.”

There are more proximal causes for our current crisis though. Unregulated financial institutions leveraged 30 to 1 selling financial instruments of opaque value based on fragile mortgage securities are at the top of the list. Lack of federal government interest in being effective at anything during the Bush administration is my second choice.

Yes and thank you- This essay is cogent and brief. An amplification of the wage/price reality is not what the numbers are but what is their relative relationship. If I make 2.00 dollars an hour and my rent is 50.00 dollars a month and my community has a full time job for me I meet the American promise. Until our “leadership” absorbs this simple economic fact our mess will continue, either into anarchy/rebellion or extreme class stratification. The elite and their toadies still denigrate wage labor and it will be their demise.

Anyone familiar with the principles of gradual vs revolutionary understands that the known continuous divergence of median income and cost of living of the recent past can occur for a while without serious consequences for the economy until a “tipping point” is reached when the behavior of consumers changes dramatically. I am firmly convinced that the tipping point happened at some time during 2008. Sure all the other factors such as housing have accelerated and worsened the crisis but Marie is absolutely correct that the rot began long before that.

I pity her critics who have demonstrated monumental ignorance of how our capitalist economy works. Such ignorance can have only one consequence namely a recurrence of recessions/depressions in the future.

They are still cooking the Books.
As a two income household who has not had a child to support in about 6 yrs, their stats are full of shit!while my income stayed stagnate, my union carpenter husbands not only remained the same, but lost benefits and hours. Our annual income has been cut in half since the late ‘90’s, with increasing out of pocket costs. not to mention the skyrocketing cost of essentials, like gas,Utitlies and groceries.
We have not taken a vacation in 4 yrs, haven’t bought any high priced commodities, or spent lavishly on parishable/flighting frills. Our home only costs us less than $1,000 a month in mortage payment, but the amount we have had to rack up on credit card to make ends meet has nearly surpassed the month mortgage payment.Not so much in principle, but in interest. Credit cards have done the same Bait and swtich,same predatory practices as the Mortgage lenders- because they are One in the same!
The myopic action being taken to curb foreclosures will only entice those with outrageous credit card costs to skip their mortgage payments. At least the Banking barons are bing forced to renegotiate the Loan shark mortgages. In fact our Annuity will allow us access to our funds if we are in foreclosure, but not to pay off our credit cards.Gee what do ya think we might consider doing? Start down the road to foreclosure so we can renegotiate that debt down and then be able to get our hands on our OWN Retirment funds? Realistically Lenders are going to be more generous in the future with mortgages since they’ll need to move those vacant houses. So going into foreclosure doesn’t mean we’ll never be able to buy a house again. But defaulting on our credit cards will send our credit rating into the toilet, negating another mortgage or any other form of credit loans.Ya think I’m intersted in borrowing any more form these Mafiosos, Now or in the Future? ya think I’m willing to hand over any more saving so they can hold it hostage again. Going pure Cash and sticking the rest under the mattress- big loss since banks savings account interest rates are nil anyway!
the Banking industry and Legislators are forcing US into foreclosure. Open up our Retirement funds so we can get these monkeys off our backs- We all know our ‘Retirement party’ will coincide with our Funerals anyway! My personal epitaph will read ‘Finally Bought the Farm’, so much for life after retirement….now just praying for Life after Death.

To say that this crisis started with any one cause is to demean the value of the production of American Workers.
No one thing is truly the cause of the current cycle of Depression. We are now living in the worst economic crisis since the “Great Depression,” and have truly surpassed that hallowed time.
With nearly $485 Billion US, in the derivatives market which have yet to be accounted for, America and the world will have to change the way commerce is done and how we are payed for work. There has never been a greater economic disaster than the one we are now facing.
Corporations and their toadies, have always been greedy and avaricious, to the nth degree. Quoting the bible, “it is easier for a camel to get through the eye of a needle than for a rich man to enter the kingdom of heaven.” The eye of a needle was the door
by which traders came into the city of Jerusalem at night, but they had to unload the camels of their portage to get the camels through that door. Leaving the goods outside until the camels entered the city.
Greed is one of the seven deadly sins, and greed we have now in abundance, remember the movie “Wall Street,” where Michael Douglas’ character says, “Greed is Good,” well beyond that we now have the maxim, “Greed is everything.”
Yet, the workers, the ones that have made these companies so great, are definitely screwed when it comes to compensation for their time and effort. Yes
engineers must unionize as well as all other workers or we must undergo a radical change in the way we are
compensated for the work we do. Included in this is a single payer health care system that must be enacted with or without the Grand Orgy Parties approval.
Unless America gets with the rest of the world, we will become and are fast approaching the “third world
country status.” And there will be nothing to stop the progression once it starts.
Given all these factors, the people must force change
upon the system, the Military-Industrial-Congressional complex must be torn apart and war must
cease to be the only way that differences are settled. We cannot much longer stand the MIC, they are bleeding this country dry, not only of its resources, but also of its future generations sons and daughters.

When I was in college in the late 80s and early 90s, I would spend my vacations temping at various office jobs. I got $8-$12 an hour—no degree, nothing more specialized than fast typing and good proofing skills.

Nowadays, I see recent college grads at my clients’ offices making—yup, $8-$12 an hour.

TWENTY YEARS LATER?

Let’s see something else: you used to be able to have dinner as family of four at a decent restaurant for less than $25. Now? That’s lunch. For one.

No doubt Cocco is correct in everything she says. However, the situation does not emerge in its true perspective until the relevant history is examined.

Which brings me to England in the 1800’s and the Corn Laws, which were protective tariffs passed in 1815 to protect English grain growers. For various reasons the law was repealed in 1850. The result .... the free trade mantra was used to drive down grain prices, the US being a big exporter, the results in Britain ... from wiki ... Britain’s dependence on imported grain in the 1830s was 2%; in the 1860s it was 24%; in the 1880s it was 45%, for corn it was 65%.[21] The 1881 census showed a decline of 92,250 in agricultural labourers since 1871, with a 53,496 increase of urban labourers. Many of these were previously farm workers who migrated to the cities to find employment,[22] despite agricultural labourers’ wages being the highest in Europe.[22]

Thus, the use of ‘free trade’ to depress wages started long ago, with capitalism and the Brits.

Also, the efforts of the ‘ruling’ or ‘financial’ class to pass laws that favor trade to the detriment of the national labor force were in full swing in Britain in the 1800s.

See… William Engdahl ... A Century of Wars .. Anglo-American Oil Politics and the New World Order ...

The US/Brits have been playing this game, nationally and globally, for 200 years.

This started when big business got greedy…...
This started when our manufacturing bases-where consumer products were manufactured for sale to the U.S. and the world-were allowed to move out of country.[to places with cheap labor and little or no EPA laws].
American consumers cannot buy anything when they have no income.[we also cannot defend ourselves in the event of foreign troops landing on American soil].
The prices for goods and services have seen a steady increase for years but the wages earned have not kept up-in fact wages have fallen[I remember my grandfather worked one job to support us with my grandmother taking an occasional temporary short term job when something special was in the works].
I have not seen the cost of a car go down when it is built in Mexico.I do see goods made in China being unsafe due to lead paint.I do see children becoming ill due to the Chinese business owners greed.I do see American companies becoming lax in safety procedures and killing people[Peanut Corp of Am.]
G.M. wants the union to give more concessions but the workers are not the ones who put the big three in to this position.Most big three jobs are gone-out of country-and the vehicles still built here are not good quality due to the people in charge of production being told to cut costs.And there have been no upgrades in machinery for decades.
Before I retired-due to injuries I received on the job-I-personally-watched foremans grind gauges with a rasp so the bad parts coming off the presses would “fit the guage”.
Now the big 3 want to “break the contracts” with the retirees.My injuries gave them the parts they needed to sell vehicles.And I did a very good job[when they allowed me to].I took positive attendance 6 years in a row.The SWEAT of people like me-taking pride in our job employment-made G.M. great..
THEIR GREED WAS THEIR DOWNFALL!

I can’t speak directly to the stats, but I can report on my own situation.

Since 1996, the only way I’ve been able to get a raise has been to change jobs. Every company I’ve worked for, both international giants and small local engineering firms, has come in with the same song-and-dance at evaluation time. “Oh, the business cycle is down, we have to wait-and-see, you read the news, we hope you understand, tra la, tra la.” This wasn’t just ME, as I would compare notes with my co-workers and they all got the same story.

At the same time that my wages stayed the same, my work load continued to become more outrageous and the demands on my time for less money were more outrageous. I quit one job because I was told that all salaried people were expected to work Saturdays, too. I got sent out to California and spent 18 days in a stinking yogurt factory working 15 hour days and when I got back to the office I asked for a couple of days comp time. They looked at me like I was from another planet. Comp time? What’s THAT?

I read somewhere that engineers have organized; I didn’t bother to check that out as I have had to quit working due to health reasons (which started during a 90 hour week I put in on a trip to California while I had pneumonia). I think that engineers SHOULD organize, but most of the engineers I’ve worked with are Bush GOPERs, which means they wouldn’t do it even if it were in their own best interests.

I believe the general premise of the article is correct. Wages have gone down or stayed the same, all the while we have maintained the same lifestyle and put it on our credit cards. Our national savings rate is in the toilet, and now our investments are only worth half of what they were worth 4 months ago. Tough times…

The author makes several good points but to focus only on median income form 2003 to 2007 is too limiting.

No, the crisis has far deeper roots and far too many other components to just grab median income, especially over so few years. The Crash was clearly on its way before then—and, in March of 2003, George W. Bush undertook the largest and most irresponsible borrowing and spending spree in our history…the illegal and unnecessary Iraq war, that BY ITSELF bleeds $120 billion out of our economy every year.

The tax cuts, starting in 2001, forced the US govt to borrow, where it didn’t need to before, and borrowing means draining the international credit markets of $400 billion to half a trillion every year—it’s called supply and demand so the credit markets drying up and getting more expensive is no surprise.

BTW, median is the 50% mark—50% of the people make MORE than the median and 50% make less—it’s one definition of a mid-point, that gives you different information than a mean (average).

Another cog in the wheel of (mis)fortune during this same period is wage deflation. Every time I was laid off, the next job always paid less. And I was still performing the same tasks. After spending months looking for work I had to take whatever was available regardless of the salary cut.

Ummm, real wages have been largely stagnant or on the downslope since the first Oil Crisis in the seventies.

The fact that median money wages have also dropped would just “worse” on top of “bad”.

Also, is “median” the most relevant average here?

I’m no statistician but wouldn’t the “mode” be better to focus on?

Unless we assume that consumption increases nearly perfectly in line with wage increases then isn’t the “most common” wage a better indicator of economic health in a production/consumption system than the “middle number” wage?

And, the Fed report quoted said NOTHING of “wage”, it spoke clearly of “income”. There are more forms of income than wages- sale of property and interest and dividend on investment are also incomes.

Plus it seemed to divide people into “income groups” on demographic lines not income level -at least the portion quoted does so.

Bill and Melinda Gates have several kids, so do my wife and I, and so does a couple living in a trailer.

What the hell does the “median income” between us tell anybody?

I’m not sure if the original report is as stupid and pointless as this author makes it, but in any case it does not discuss wages it discusses incomes.

The real “wage crisis” is the one that has been ongoing since the ‘70s: the failure of money wages to keep pace with inflation for the majority of American wage-earners.

That’s when credit cards BEGAN.

That’s when “two-income families” began to become the norm, not the exception.

That’s the relevant period of history to harken back to in looking for the source of this problem (and really even further, back to the focus on manufacturing and management post-war and the failure to adjust once Europe and Japan had rebuilt that led to the recession of ‘68 and then further limitation of manufaturing growth after peak domestic oil production in’70-‘71, the failure of the Union movement from the Cold War till it was effectively crippled by Reagan also comes into play as do other factors -true history is complex, with simplicity only arriving upon interpretation and understanding).

But that would implicate BOTH of the Corporatist Parties in several Presidential and Congressional iterations each.

And I have a feeling that is very much NOT on the Author’s agenda.

She seems like an Obama-type to me. The type wo wants to shove the large group who have a “yearly family income” of $40,000 or so together with the small group who bring in $250K and call them all “middle class”.